Legislation in Washington State Would Ban Bitcoin at Marijuana Stores

The use of Bitcoin and other cryptocurrencies by marijuana retail stores is under attack in the State of Washington with a new bill filed on January 18th, 2017. The bill, Senate Bill 5264, was introduced in the Washington State Senate by Republican State Senator Ann Rivers and Democratic State Senator Steve Conway. The bill was referred to the Senate Committee on Commerce, Labor & Sports, which held a public hearing on the bill on January 25th. Voters in Washington legalized recreational marijuana with Initiative 502 during the 2012 General Election.

Under SB 5264, “A marijuana producer, marijuana processor, or retail outlet must not pay with or accept virtual currency for the purchase or sale of marijuana or any marijuana product.” Virtual currency is defined under the bill as, “digital representation[s] of value used as a medium of exchange, a unit of account, or a store of value.” Sen. Rivers told Coindesk that, “One of the goals of my Cannabis Patient Protection Act, which became law in 2015, was to eliminate the black and gray markets for cannabis in our state. SB 5264 addresses another part of the regulatory challenge. After all the work we’ve done to get a handle on the cannabis industry and help move it out of the shadows, allowing the use of unregulated currency for cannabis purchases doesn’t promote the level of transparency we committed to develop.”

At the public hearing on SB 5264 on Wednesday January 25th, two people from PayQwick, a money services business known as the “PayPal of Pot”, lobbied in favor of the bill. PayQwick obviously sees Bitcoin as a threat to their business. In their testimony they claimed that Bitcoin “lacked transparency”, but Kenneth Burke, co-founder of PayQwick, admitted when questioned by a Senator that Bitcoin has the potential to reduce the number of armored cars full of cash moving around the State of Washington. Tom Parker, testifying on behalf of PayQwick, also admitted that Bitcoin was a competitor to PayQwick. Burke falsely claimed that there was no traceability with Bitcoin.

Speaking against SB 5264 at the hearing, Joseph Cutler of Perkins Coie urged the legislature to understand virtual currencies before they decide to regulate them. Cutler explained how Bitcoin is in fact transparent and how transactions are recorded on the blockchain. Ryan Hamlin of POSaBIT, formerly of Microsoft, also testified against the bill, pointing out the dangers of a cash only business. Cutler pulled out his cell phone and showed how he could monitor Bitcoin transactions taking place at a local marijuana retailer, something that is not possible with cash transactions. Jon Baugher, co-founder and COO of POSaBIT, also testified against the bill, pointing out that major corporations are accepting Bitcoin, “Why would we exclude one industry that is in dire need of it,” Baugher asked. James Paribello of the Washington State Liquor and Cannabis Board explained how there have been less problems with cash, such as robberies, “Since we’ve gone and we’ve encouraged the industry to move to electronic payments as much as possible, that’s dwindled to a very small amount now.” Baugher said he had no problem with the use of Bitcoin in the marijuana industry.

The marijuana industry must rely on cash business and virtual currencies as federal regulations prevent marijuana sales from being conducted with credit and debit cards. Banks and credit unions will not accept money from marijuana retailers. In 2016 the Federal Reserve denied an application for the creation of a marijuana credit union. In Washington State, Bitcoin has been used for state legal marijuana transactions since at least 2014. In February of 2014, Kouchlock Productions opened up in Spokane County as a medical marijuana dispensary that accepted Bitcoin. Since then, the state legislature has shut down all medical marijuana dispensaries, and Kouchlock Productions is now a recreational marijuana retailer under I-502.

It is not known if the bill will receive a second public hearing where people will have a chance to speak out against the bill. If the bill is enacted, it is likely that the law will be challenged in state court. “It seems like quite a stretch to single out a specific industry to be excluded from using a particular type of payment—I imagine the lawyers will have a field day with that,” Rob Fess, Director of Marketing for Tradiv, a wholesale marijuana sales platform that operates in Washington, told Coindesk. Currently there is no companion bill in the Washington State House of Representatives. SB 5264 remains in the Senate Committee on Commerce, Labor & Sports.